GST will speed up movement of goods: Mahindra Logistics chief

Mumbai to Kolkata is 2,103 km, Los Angeles to Chicago covers 2,015 km. But transportation of goods from Mumbai to Kolkata takes 108 hours, while Los Angeles to Chicago takes just 48 hours.

Travelling at an average speed of 40-45 km per hour, a vehicle in India would have to encounter 21 tolls, and 12 RTO and sales tax checkposts, while those in the US encounter far less. A subsidiary of the $16.5-billion Mahindra Group, Mahindra Logistics is a ₹2,000- crore integrated supply chain and logistics service provider.

Speaking to BusinessLine about the hurdles that ail infrastructure in the country, which in turn leads to delays for logistic companies, Pirojshaw Sarkari, CEO, said, “Logistics cost by value accounts for around 13.5 per cent of the GDP of India. This is much higher than that in the US, where it is at 9 per cent, or Europe (10 per cent), or Japan (11 per cent).”

World Bank

According to the World Bank, India is ranked 46th in the logistics performance index among 155 countries, said the CEO, adding that the composite index for this ranking is based on five factors, namely customs efficiency of the clearance process (that is, speed, simplicity and predictability of formalities by border control agencies, including customs), quality of trade and transport related infrastructure (ports, railroads, roads), international shipments (ease of arranging competitively priced shipments), logistics competence, tracking and tracing (ability to track and trace consignments) and timeliness.

The CEO added that since currently, “Each of India’s 29 States taxes goods that move across their borders at different rates, as a result, freight that moves across the country is taxed multiple times, not forgetting the long delays.” It takes an average of 5- 7 hours at each check point, and at inter-State checkpoints. Quoting World Bank estimates, Sarkari noted that “simply halving the delays due to roadblocks, tolls and other stoppages could cut freight times, and hence logistics costs by an approximate 30-40 per cent.”

By conservative estimates, since around 65 per cent of India’s freight moves by road, the CEO said it makes “Goods and Service Tax (GST) imperative for the country and the sector”.

Commenting on how GST would prove to be a boon for the company, the CEO said, “The planned GST system seeks to replace around 15 State and Central taxes and tariffs for a single tax at the point of sale. GST, once implemented, will free the decisions on warehousing and distribution from tax considerations, and henceforth base them upon operational and logistics efficiency instead.”

Stunted growth

Speaking about how public investment in infrastructure development would help the company, Sarkari said, “In the words of Finance Minister Jaitley, our infrastructure does not match our growth ambitions, hence the pressing need to increase public investment. While India is the fourth largest economy in the world, a key factor obstructing our growth and development is the lack of world class infrastructure. Estimates suggest that this reduces India’s GDP growth by 1-2 per cent every year.”

Stating that physical infrastructure has a direct impact on the growth and overall development of an economy, the CEO added, “The goals of inclusive growth, and 9 per cent growth in GDP can be achieved only if India’s infrastructure deficit is overcome, while also facilitating a healthy environment for investment.”